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LA1710:Poverty and Inequality

Name-Vinod Choupal
Roll No-ES18BTECH11023

Q2. what may be possible impacts of COVID19 on poverty and

inequality ?Discuss with a focus on Lorenz curve ,Gini coefficient and
poverty line.

Coronavirus is like a blackout that has caught half the world off guard in
the elevator of inequality and the myth of a globalization that is
supposed to benefit us all.With COVID-19 spreading in India, massive
consequences to health and livelihoods are feared, and the government
has imposed a national lockdown to limit virus transmission.In India
millions of domestic migrant workers found themselves trapped under
the Governmental order to stop working and go home to lockout. With
no transport available, masses of packed people are walking long
distances with high risk of infections among them.. After the 21+19 day
full lockdown lockdown, it has planned to maintain the full lockdown in
“hotspot” areas and relax it in other places.These measures may help in
limiting the health crisis, but—as in other countries—the complete
shutdown of all economic activities except essential services will create
an economic crisis and misery for the poor, with massive job losses and
rising food insecurity. There are many
sectors that is going to affect the gini coefficient and lorenz curve .
Decreasing in Business investment,closing of big firms to small street
shops will affect different people life differently and will create
inequality in society.

It is said that businesses are grappling with

"tremendous uncertainty" about their future. According to the survey,
COVID-19 is having a 'deep impact' on Indian businesses, over the
coming month's jobs are at high risk because firms are looking for some
reduction in manpower. Already COVID-19 crisis has caused an
unprecedented collapse in economic activities over the last few weeks.
No doubt disrupted human lives and global supply chain but the
pandemic is a severe demand shock The revised Gross
Domestic Product (GDP) estimates for India downwards by 0.2
percentage points for the fiscal year 2020 to 4.8 per cent and by 0.5 per
cent for the fiscal year 2021 to 6 per cent. The extent of the actual
impact will depend upon the severity and duration of the outbreak.
Due to weak domestic consumption and consumer sentiment, there can
be a delay in investment which further add pressure on the growth.
Also, a supply chain may affect some disruptions associates with
industries and markets. Let us have a look at
the sector-wise impact on people livelihood and job loss.
Chemical Industry: Some chemical plants have been shut down in
China. So there will be restrictions on shipments/logistics. It was found
that 20% of the production has been impacted due to the disruption in
raw material supply. factory worker in India is likely to get affected and
at edge of losing job.

Auto Industry: As before the COVID19 ,this sector is badly in loss due to
decline in purchasing power of vehicles and slowdown in Indian
economy .This sector is very important for india GDP contribution .A lot
of workers are working in this sector.so shuting down of this sector will
push more people below poverty line.decline in revenue by this sector
will badly affect the total treasure of government. government will have
lack of fund and ultimately condition of poor might be severe by this
sector. Textiles Industry-A lot of man power and small business is
involved in this sector.This sector will hit people's livelihood badly.
Tourism and Aviation: Due to the coronavirus outbreak, the inflow of
tourists to India will lose that will impact the tourism sector involved
labour like drivers ,bus business etc.

people with not job seculity or daily wages workes who are either
below povert line or vulnerable will suffer badly.There is no dispute
that poverty in the country will worsen and many people will be
deprived of basic human needs,food,sanitation facility and health. It is
ovious that gini coefficient will increase and lorenz curve will shift far
from the perfect equality line.hence ,inequality will increase in the
country.but the question is, how much it can be worse?how much
population will go below poverty line?

Even a 25% fall in their incomes will make 354 mn

more people poor. In 2011-12 year, India had about 270 million poor
people, or about 21.9% of the population. UN’s International Labour
Organization (ILO) claimed that about 400 million workers from India’s
informal sector are likely to be pushed deeper into poverty due to
Covid-19. let try to understand this poverty scenerio by two examples.
In the first, all individuals lose a month’s payment, which implies a loss
of about 8.3% in average MPCE. In the other, individuals suffer income
loss for three months, implying loss of about 25% in average MPCE. Let
us illustrate our calculations using the example of Uttar Pradesh.
We assume (i) a uniform shock across fractiles and (ii) incomes to return
to pre-Covid levels after the three month (March – May) disruption. In
2011-12, poverty threshold levels for the state (per person per month)
were Rs 768 and Rs 941 for rural and urban areas, respectively. Based
on this, the state’s poverty ratio was estimated to be 29.4%. If we
introduce an income shock of 25%, then, measuring against the same
poverty threshold levels, UP’s poverty ratio comes to be 57.7%. Upon
applying this new ratio to UP’s 2019-20 population estimate, we find
that about 71 million more poor people would be impoverished in the
state. Using the same method for all states and UTs, we find that
with the 25% shock to incomes across all fractiles: (i) India’s overall
poverty rate rises to 46.3%, i.e., more than twice the 2011-12 levels,
and higher than even the 1993-94 levels and (ii) this means that India
will have an additional 354 million poor, taking the total count of the
country’s poor to about 623 million. At the
state level, we find that the shock (i) more than doubles poverty in 27 of
the 35 states and UTs and (ii) five states—UP, Bihar, Maharashtra, West
Bengal, and Madhya Pradesh—account for more than 50% of the 354
million newly added poor. As mentioned before, for the sake
of simplicity, we made some assumptions. First, we assumed a uniform
income shock across all fractiles. There is enough evidence that people
in the lowest fractiles (the ones who are already poor, or at threshold),
most of whom work in the informal sector, are the worst hit. This
indicates that the income shock is not likely to be uniform across
fractiles. Second, in our worst-case scenario, we assumed a 25% income
shock. Sadly, there is growing and widespread evidence of job losses
among low-income fractiles, indicating that an income shock much
greater than this is likely for the people in these fractiles. our
assumption about incomes eventually recovering to pre-Covid-19 levels
after three months is also likely to be overly optimistic. Income levels in
the coming months will be determined by how the economy recovers,
and how lost employment is regenerated .The economic shock will likely
be much more severe for India. for two reasons. First, pre-COVID-19,
the economy was already slowing down, compounding existing
problems of unemployment, low incomes, rural distress, malnutrition,
and widespread inequality. Second, India’s large informal sector is
particularly vulnerable. Out of the national total 465 million workers,
around 91% (422 million) were informal workers in 2017-18. Lacking
regular salaries or incomes, these agriculture, migrant, and other
informal workers would be hardest-hit during the lockdown period.
Here, I focus on the likely impacts on agriculture, supply chains, food
and nutrition security and livelihoods.
Agriculture and supply chains COVID-19
is disrupting some activities in agriculture and supply chains.
Preliminary reports show that the non-availability of migrant labor is
interrupting some harvesting activities, particularly in northwest India
where wheat and pulses are being harvested. There are disruptions in
supply chains because of transportation problems and other issues.
Prices have declined for wheat, vegetables, and other crops, yet
consumers are often paying more. Reports show that the closure of
hotels, restaurants, sweet shops, and tea shops during the lockdown is
already depressing milk sales. Meanwhile, poultry farmers have been
badly hit due to misinformation, particularly on social media, that
chicken are the carriers of COVID-19. The government has correctly
issued lockdown guidelines that exempt farm operations and supply
chains. But implementation problems leading to labor shortages and
falling prices should be rectified. Keeping
supply chains functioning well is crucial to food security. It should be
noted that 2 to 3 million deaths in the Bengal famine of 1943 were due
to food supply disruptions—not a lack of food availability.
The lockdown has choked off almost all economic activity. In urban
areas, leading to the widespread loss of jobs and incomes for informal
workers and the poor. Estimates by the Centre for Monitoring Indian
Economy show that unemployment shot up from 8.4% in mid-March to
23% in the first week of April. In urban areas, unemployment soared to
30.9% as of April 5. The shutdown will cause untold misery for informal
workers and the poor, who lead precarious lives facing hunger and
malnutrition.

The best way to address this urgent need is to use

social safety nets extensively to stabilize their lives with food and cash.
The Indian government has quickly responded to the crisis and
announced a $22 billion relief package, which includes food and cash
transfers. Several state governments have announced their own support
packages. However, it is inadequate compared to the enormous scale of
the problem. Nobel Prize economists Esther Duflo and Abhijit Banerji
say that the government should have been much bolder with the
package’s social transfer schemes. The $22 billion in spending is only
0.85% of India’s GDP. This is much lower than the packages passed by
the United States, European and some Asian countries. India should
think bigger, and be spending at least 4% to 5% of GDP. The central and
state governments must spend more, even if there is one-time hike in
the fiscal deficit.

Food and nutrition security. Government warehouses are overflowing

with 71 million tons of rice and wheat. In order to avoid exclusion
errors, it is better to offer universal coverage of distribution in the next
few months. COVID-19 is an unprecedented challenge for India; its large
population and the economy’s dependence on informal labor make
lockdowns and other social distancing measures hugely disruptive. The
central and state governments have recognized the challenge and
responded aggressively—but this response should be just the
beginning. India must be prepared to scale it up as events unfold, easing
the economic impacts through even greater public program support
and policies that keep markets functioning.